Kerr & Christie
[2021] FamCA 624
•27 August 2021
FAMILY COURT OF AUSTRALIA
Kerr & Christie [2021] FamCA 624
File number(s): SYC 3851 of 2020 Judgment of: ALTOBELLI J Date of judgment: 27 August 2021 Catchwords: FAMILY LAW – PROPERTY – interim distribution of funds– application for interim spousal maintenance – interim property adjustment or interim costs – application for a binding private ruling to be made by the Commissioner of Taxation in accordance with Division 359 of the Taxation Administration Act 1953 – complex asset pool – whether there exists capital gains tax liabilities – where one party is in a position of relative financial strength compared to the other – whether the husband ought to liquidate assets in order to fund litigation – interim costs order made – parties to attend conciliation conference – parties to make an application to the Commissioner of Taxation for a binding private ruling. Legislation: Family Law Act1975 (Cth) ss 72, 74, 79, 80, 114 Cases cited: Blueseas Investments Pty Ltd v Mitchell (1999) FLC 92-856; [1999] FamCA 745
Cimorelli & Wenlack [2020] FamCAFC 58
Number of paragraphs: 25 Date of last submission/s: 1 June 2021 Date of hearing: 1 June 2021 Place: Sydney Counsel for the Applicant: Mr Alexander Solicitor for the Applicant: Russell Kennedy Aitken Lawyers Counsel for the Respondent: Mr Richardson SC Solicitor for the Respondent: Barkus Doolan ORDERS
SYC 3851 of 2020 BETWEEN: MR KERR
Applicant
AND: MS CHRISTIE
Respondent
ORDER MADE BY:
ALTOBELLI J
DATE OF ORDER:
27 AUGUST 2021
THE COURT ORDERS THAT:
1.
The matter be referred back to the Docket Registrar for a Direction Hearing on
8 September 2021 at 2pmfor the purpose of making directions for the matter to proceed to Conciliation Conference and allocating a date for same.
2.In the event that the parties do not reach agreement in four weeks following the date of the Conciliation Conference, the husband, in his capacity as a director, shareholder and public officer of B Pty Ltd (“the company”), forthwith do all acts and things and make all payments and sign all documents, applications, authorities and provide all information and documents as necessary or required to apply to the Commissioner of Taxation for a Private Binding Ruling in accordance with the requirements set out in Division 359 of the Taxation Administration Act 1953 (Cth), asking:
(a)if the Commissioner is satisfied or thinks it reasonable to assume, that the majority underlying interests in the “Property C” and "Property D" E Town property owned by the company has been held by the same ultimate owners at all times from immediately before 20 September 1985 to now, and therefore, on disposal of the property, any capital gain arising to the company is disregarded; and/or
(b)if the Commissioner is not satisfied that the disposal of any property held by the company will not be exempt from any capital gain, a Ruling be made identifying the date which triggered the change resulting in that property being subject to capital gains
3.To give effect to Order 2:
(a)the husband shall make an application for a private ruling in the approved form to the Commissioner of Taxation;
(b)that application is to be collaboratively prepared by the accountant/advisor for the husband and the accountant/advisor for the wife and each party's accountant/advisor is to agree to the final version of the Private Binding Ruling to be submitted;
(c)the husband shall answer all requests for information and documents from the Commissioner of Taxation in a timely manner;
(d)the husband shall confirm in writing that the information provided in the final Private Binding Ruling is true and correct, provide a copy of that confirmation in writing to the wife, and confirm the accountant/advisor is authorised to submit the application; and
(e)the husband shall provide to the wife a copy of all communications and correspondence between himself and or his agents, and the Commissioner of Taxation in respect of this issue, within seven days of sending/receiving any such communication and or correspondence.
4.Pursuant to s 117(2) of the Family Law Act 1975 and within 21 days of the date of this order, the wife is to pay to the husband the sum of $200,000, such sum to be paid into an account nominated by the husband.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Kerr & Christie has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
ALTOBELLI J:
INTRODUCTION
These reasons for judgment explain interim orders that have been made in a complex property matter.
BACKGROUND
The husband is the Applicant in substantive proceedings for alteration of property interests, but is the Respondent in the present application. He is 56 years old and describes himself as a farmer. The wife is the Respondent in the substantive proceedings, but is the Applicant for present purposes. She is 55 years old. The parties commenced cohabitation in 1995, and married in 1996. They have three adult children aged 22, 20 and 18 at the time of the interim hearing. They separated in August 2019. The present proceedings commenced in June 2020. The husband lives in Sydney, and the wife lives in the F Region of New South Wales. It is common ground that the net pool of assets has a value in the vicinity of $50 million. The wife controls about $35 million of that and the husband about $15 million.
THE COMPETING APPLICATIONS
As a result of negotiations and sensible compromise between the parties, no doubt assisted by their solicitors and counsel, I was able to make consent orders in relation to disclosure issues, as well as the division of personal property. Two issues therefore remained for determination.
In Order 2 set out in the wife’s Case Outline document filed 27 May 2021 she sought an order that the husband, in effect, cause a company known as B Pty Ltd (‘the company’) to make an application to the Commissioner of Taxation for a Private Binding Ruling (‘BPR’) in relation to capital gains tax issues pertaining to the assets held by the company. This was on the basis that the wife would fund the cost of such application, and that the application would be made as soon as possible. Should the Court order the parties to attend a conciliation conference, then the wife would be prepared to postpone the application until after any unsuccessful conciliation conference. The husband opposed the making of such an order for the time being. He preferred that the matter proceed to a conciliation conference as soon as possible, but subject to the other order he sought which will be discussed below, any further consideration about the need for a BPR be adjourned until after the conciliation conference. The Court notes that the issue is whether there is a capital gains tax liability which affects the value of the shares held by the husband in the company. The impression formed by the Court is that the husband seems more confident than the wife that there is no capital gains tax liability and thus he was prepared to attempt to negotiate a settlement on this basis.
The second issue relates to the orders sought by the husband in Orders 5-8 of the minute of order provided to the Court by his lawyers before the interim hearing. In effect, he sought a sum of money pursuant to a number of alternative heads of power. At the hearing itself, the husband amended his proposal so that he sought $200,000 to cover his needs, including interim costs, up to and including the conciliation conference and on the basis that a further application would be made after that date, should the matter not settle. The wife strenuously opposed the making of this or any order for funding, particularly having regard to the husband’s asset position.
THE MATERIAL BEFORE THE COURT
In the wife’s case, she sought to rely on the following documents:
(a)Her Response to Initiating Application filed 19 August 2020;
(b)Her Financial Statement filed 1 April 2021;
(c)Her Affidavit filed 7 May 2021 and accompanying exhibit bundle;
(d)An Affidavit of Ms G filed 7 May 2021 and accompanying exhibit bundle;
(e)A Case Outline document filed 27 May 2021;
(f)A costs disclosure statement marked by the Court as exhibit C1; and
(g)A Court Book marked by the Court as exhibit C2.
In the husband’s case, he sought to rely on the following documents:
(a)His Initiating Application filed 17 June 2020;
(b)His Affidavit filed 23 April 2021;
(c)His Financial Statement filed 1 April 2021;
(d)A Case Outline document filed on 31 May 2021;
(e)A costs disclosure statement marked by the Court as exhibit K1; and
(f)A minute of orders sought by him marked by the Court as exhibit K2.
THE BPR ISSUE
Counsel for the husband submitted that the Court did not have power to make an order requiring the husband to compel a third party, the company, to make an application to a fourth party, the Australian Taxation Office.
Senior counsel for the wife submitted that the power is found in s 114(3) of the Family Law Act1975 (Cth) (‘the Act’). That section provides:
(3)A court exercising jurisdiction under this Act in proceedings other than proceedings to which subsection (1) applies may grant an injunction, by interlocutory order or otherwise (including an injunction in aid of the enforcement of a decree), in any case in which it appears to the court to be just or convenient to do so and either unconditionally or upon such terms and conditions as the court considers appropriate.
Moreover, senior counsel submitted, and the Court accepts, that the evidence establishes that the husband had practical control of the company and could comfortably cause it to make the BPR application. The Court is satisfied that it does have the power to make the order sought by the wife pursuant to s 114(3) as reproduced above. The question is whether it should, in the circumstances, do so. It seems to the Court that whilst the wife would prefer that the BPR be sought as soon as possible, she would nonetheless be prepared to attend a conciliation conference to explore settlement in the absence of the ruling. In these circumstances, the Court would not be prepared to order that an application for a BPR be made before an unsuccessful conciliation conference. One could be forgiven for thinking that the husband was keen to try to settle this case without the BPR, no doubt for his own reasons. He will be given that opportunity but, self-evidently, the value that he places on his shareholding in the company will need to reflect his confidence that there is no capital gains tax liability, otherwise one would reasonably think there is little incentive on the wife to accept his valuation of what is clearly a substantial asset.
Should the wife’s proposed order in relation to the BPR be made, if the matter does not settle at, or as a result of, the conciliation conference?
It was difficult to understand the husband’s opposition to this. His counsel quite properly accepted that evidence would need to be led at a final hearing about whether there was a capital gains tax liability and if so, in what quantum. With great respect to counsel, his explanation for why such evidence should not be obtained sooner, rather than later, was somewhat unconvincing. The issue of the value of the husband’s shares in the company, and whether there was a capital gains tax liability affecting this value, was the subject of correspondence between the wife’s and husband’s lawyers. At times, even the correspondence of the husband’s lawyers seemed to suggest that there was a potential capital gains tax liability that needed to be explored, which was strangely at odds with the husband’s desire at the interim hearing to postpone this for as long as possible.
The wife read an Affidavit of Ms G, affirmed 7 May 2021. Ms G is a finance professional whose experience, as evidenced in her curriculum vitae, suggests that she has expertise in taxation matters. The Court is, of course, cognisant of the fact that her evidence is untested: Cimorelli & Wenlack [2020] FamCAFC 58 at [80]. Nonetheless, the strong impression formed in the context of an interim hearing is that the only way that there can be any certainty about the capital gains tax issue is if a BPR is sought. Indeed, on one reading of the report there is room for reasonable confidence that the BPR would be favourable, if the appropriate evidence were to be furnished.
Having regard to the above, the Court is inclined to make the orders sought by the wife, but on the basis that the matter does not settle within four weeks of the conclusion of the conciliation conference.
THE INTERIM COSTS/PROPERTY/MAINTENANCE ISSUE
As foreshadowed, the husband sought interim financial provision from the wife in the sum of $200,000 to see him through to the conciliation conference. His counsel submitted that the order could be made on a number of alternative bases including an interim property order under ss 79 and 80, a maintenance order under ss 74 and 72, or finally as a costs order under s 117(2) of the Act. Whilst the husband’s counsel advanced the case on any of these bases, by the time oral submissions had concluded, the Court was satisfied that the preferred statutory foundation of the claim was under s 117(2) of the Act, but on the basis that if the order were made, a trial judge could make a compensatory costs order in favour of the wife at final hearing.
A number of observations are apposite. The claim for $200,000 bears no resemblance to the amounts referred to in Order 5 of the husband’s minute of order. One suspects that the husband’s approach was pragmatic. That is not to say that the claim is unsupported by his evidence. The husband conceded that he is not impecunious. However, he submitted that whilst he is asset rich he is very much cash poor. That is a fair summation of the evidence of his financial circumstances. There is still a live issue to be determined, however, as to whether he was unable to meet his litigation costs out of his substantial assets. There is no doubt, based on the evidence of the wife’s financial circumstances, that she is in a position of relative financial strength compared to the husband, and that she would have the capacity to meet an order for interim financial provision in the sum of $200,000.
The husband’s costs notice, marked as exhibit K1, discloses that as at 31 May 2021 he owed his lawyers approximately $201,415.12 in outstanding legal fees, which figure does not take into account work in progress both at that time, and subsequently. In that same costs disclosure notice, his solicitors estimate costs up to and including the present interim hearing, inclusive of counsel’s fees, to be $30,000. The Court is therefore satisfied that a claim for interim costs in the sum of $200,000 is supported by the evidence.
The submissions made on behalf of the wife, however, were to the effect that the husband did, in fact, have capacity to meet his own expenses and costs. Indeed, there was almost a sense of incredulity that a man with approximately $10 million worth of assets could seek interim financial provision from his wife, merely because her wealth was considerably greater than his.
A close examination of the financial circumstances of the husband needs to be undertaken. The context of this exercise must be recognised. This is an interim hearing. The evidence of the husband cannot be tested. The best the Court can do is to form impressions about his evidence, particularly having regard to the submissions made on behalf of the wife. The husband is 56 years old. He describes himself as a farmer. He explains that the drought has had a considerable impact on his farming operations, and thus his income. The Court accepts this evidence at face value. To suggest that, somehow, the husband should be finding some other work probably minimises the practical difficulties for him. For example, the fact that the drought is affecting his farming income does not mean that he does not have to continue to work the properties. For example, he gives evidence about undertaking works to improve water access. At paragraph 71 of his Affidavit filed 23 April 2021, he deposes that these efforts have been time-consuming but resulted in only small financial gains. The husband deposes to the income that he has been able to derive from his properties, including rental income from the H Town property, income from farming, as well as agistment fees. He accounts for this income, and his expenses. His Financial Statement made 31 March 2021 deposes to a significant weekly shortfall between income and expenses, even taking into account more recent income from agistment received after the Financial Statement. There is no doubt that the husband has substantial equity in the properties that he owns. Nonetheless, he deposes to liabilities of nearly $2.7 million. To suggest that somehow the husband could borrow money on the security of his assets merely because he has equity, and notwithstanding a significant deficit between income and expenses on a weekly basis and his existing liabilities, is simply unrealistic. Moreover, the Court does not accept that the husband should necessarily be forced to liquidate his assets for the purpose of funding his own litigation in circumstances where, on the wife's own evidence, she has significant liquid assets that could be used to fund the same, without any ultimate prejudice to her claim.
It must be remembered that the principle that underlies the jurisprudence about interim financial provision within the family law jurisdiction is the imbalance of power between litigating parties: Blueseas Investments Pty Ltd v Mitchell (1999) FLC 92-856 at [54]. In some cases, there may be little or no difference between all of the assets being held by one party, and 80 per cent of the assets being held by one party. The law aims to create a level playing field between the litigants, and to minimise abuses of power and process when the playing field is not level. Thus, on the facts of this case, to suggest that the husband should liquidate assets is akin to an abuse of the power which the wife inherently possesses in this case because of the enormous disparity in the wealth that is controlled by them.
Senior counsel for the wife was critical about aspects of the husband's expenditure. The issues raised included excessive rental costs paid on his Sydney accommodation, the amount spent on furnishing that accommodation, post-separation travel and holidays, and discretionary spending. The context of this criticism needs to be understood. It is clear from the husband’s Case Outline that these are matters directly relevant to the husband's contention that he could not fund the litigation from his own resources. It is also relevant to the husband's reasonable expenses, were he to have formulated the basis of his claim for financial provision as being spousal maintenance. The Court does not accept that these criticisms are legitimate or reasonable. Whilst the total of the husband's weekly expenses are in excess of $12,000, a substantial proportion of that is business expenses including loan repayments. The wife claims weekly expenses in excess of $7,000 per week, which do not include any business expenses or loan repayments notwithstanding the fact that the balance sheet annexed to her Affidavit of
7 May 2021 refers to significant loan liabilities, quantified in the millions of dollars. The Court is therefore far from convinced that the husband's expenditure complained of is excessive, and should be used towards payment of his litigation costs.
Accordingly, the Court finds that there is neither a general principle, nor is it the situation in this particular case, that the mere fact that an applicant for financial provision has $10 million in assets necessarily precludes a successful application for that financial provision. Each case must be determined having regard to its own facts, and in particular the individual circumstances of the applicant, and the nature of the assets held by them.
As the financial circumstances of the parties are so divergent, this is a reason to make the order for interim costs sought by the husband: s 117(2)(a) of the Act. The pool of assets is large enough to reasonably assure the wife that if the husband’s claim is unsuccessful, any costs order made against him can recompense her for the present interim payment.
The only other relevant consideration is s 117(2)(g) of the Act. The husband’s ability to conduct this litigation will be greatly hampered if he is not adequately represented. The pool of assets is large and the issues complex. The wife is well-represented.
Having regard to my earlier comments, I consider that the evidence supports an order for interim costs in favour of the husband. I will order that the wife pay to the husband the sum of $200,000 pursuant to s 117(2) of the Act, such amount to be payable within 21 days of the date of the order.
In addition, I will order that the matter be referred to the Docket Registrar to enable directions to be made and a date allocated for the matter to proceed to a conciliation conference.
I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Altobelli. Associate:
Dated: 27 August 2021
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